Ag markets: US cold, dryness fears foster wheat price bounce

March 21, 2016 at 10:42 am

Looks like it was a bit colder in the US Plains over the weekend than investors had bargained for.

A holiday-shortened week (Friday brings the Good Friday holiday in the US and many other countries) began on a strong note for wheat futures, amid ideas that the weekend weather did cause a little bit of damage after all to winter wheat seedlings.

“Cold weekend temperatures in western Nebraska, far western Oklahoma, and far north west Kansas resulted in spotty winterkill damage,” said weather service MDA.

‘Trending drier’

It has to be said that not all investors are so convinced over the extent of the setback to yield prospects.

“Only the western edge of the hard red winter wheat region saw particularly low temperatures,” said Tobin Gorey at Commonwealth Bank of Australia.

(Hard red winter wheat, traded in Kansas City, is the main type grown in the Plains, with Chicago-traded soft red winter wheat, the speculators’ favourite, a mainly Midwest crop.)

Still, to clinch it for wheat bulls, the Plains forecast has turned drier too, touching another raw nerve for producers, in concerns over growing dryness in states such as Kansas, the top wheat-growing state, and Oklahoma.

Chicago wheat for May gained 0.5% to $4.65 ½ a bushel as of 09:05 UK time (04:05 Chicago time), albeit standing well below a high of $4.69 ½ a bushel reached earlier, which had taken the contract back above its 40-day moving average.

But the real barometer of weather fears was Kansas City hard red winter wheat, which for May stood 1.1% higher at $4.74 ½ a bushel.

The gains came despite an upbeat assessment by India’s government of domestic wheat production prospects, with farm minister Radha Mohan Singh saying that “the recent untimely rains and hailstorms in some parts of the country have caused some damage.

“But, as per the present assessment, production of wheat in the country will still be around 92m-93m tonnes,” Radha Mohan Singh said in a statement.

That is well above expectations from private analysts, some of which are not above 80m tonnes.

‘Much more manageable’

The rise in wheat prices also defied some strength in the dollar – which gained 0.2% against a basket of currencies, so making dollar-denominated exports such as many ags less affordable.

And it came despite data late on Friday on hedge fund positions which might be considered bearish too, in showing that speculators, in the week to last Tuesday, wiped out their hefty net short position (the second largest on record) in the top US-traded ags.

They returned to a net long position, of more than 33,000 lots, for the first time since January, implying that further support to futures from short-covering may be limited.

Speculators retained a net short position in wheat, but a reduced one, near-halving their net short in Kansas City wheat, to a bit under 14,000 tonnes.

“While they still hold net short positions [in wheat], these positions have become much more manageable,” said Benson Quinn Commodities.

‘Yield reports are very good’

In soybeans, a mammoth turn bullish in positioning, driving hedge funds from a let short of more than 43,000 lots to a net long of nearly 22,000 contracts in the week to Tuesday, was viewed as positive downbeat for prices.

“They may have been net buyers the balance of last week,” Benson Quinn Commodities said, adding that “this position looks like a negative factor” for prices.

As an extra negative for values, hopes for South American soybean harvests are improving.

For Brazil, “crop estimates are inching higher with most estimates between 100m-102m tonnes”, CHS Hedging said.

In Argentina, where harvest is in its early stages, “yield reports are very good so far and [production] estimates might start creeping higher”.

Soyoil slips

As an extra pressure on Chicago soybean values, futures in soyoil – which were a big support to the oilseed itself earlier in the month – sagged, shedding 0.7% to 33.20 cents a pound for May delivery.

This despite some strength in rival vegetable oil palm oil, which gained 0.3% to 2,688 ringgit a tonne in Kuala Lumpur, helped by estimates of strong Malaysian palm exports so far this month, pegged by cargo surveyor as up 23% compared with the same period of February.

That said, the boost comes ahead of the reimposition of an export tax on Malaysian palm shipments, with many importers likely stocking up while the rate is still zero.

Soyoil bulls may be deterred by the extent of long bets that investors already have on Chicago derivatives, at nearly 75,000 lots, the second biggest on records going back to 2006, and suggesting that the position may be a little “crowded”.

‘Plenty of buying left’

Futures in soybeans themselves eased by 0.2% to $8.96 a bushel in Chicago, for May delivery.

And that was a negative for corn, a rival in spring sowings programmes, which eased by 0.3% to $3.66 a bushel for May delivery – a small drop, but significant enough to take the contract back below its 50-day moving.

The lot, however, earlier found support at its 10-day moving average, at $3.65 ½ a bushel.

Still, there were ideas that corn may find further short-covering, with the move by funds to cut their net short by 41,000 contracts to 188,167 lots in the latest week still leaving the position at a near-record high.

Benson Quinn Commodities forecast that “there will plenty of buying left to complete before the end of the month which could offer support [to prices] on the breaks,” with the end of month important as it brings a much-watched report on US farmers’ sowings intentions.

“The spec trade won’t likely be interested in holding a record short into a weather market,” with weather upsets to spring sowings often bringing price spikes.